The Third World

It was not very nice of Donald Trump to describe third world countries as ‘shithole countries’. This was rude and unacceptable language. Tut tut. Naughty Mr Trump. He needs to use more polite language in future. But even when people use rude words it is necessary to examine their argument carefully, and to consider whether there is any truth in it.

​​Mr Trump was attempting, in that popular method of philosophical inquiry known as the bull-in-the-china-shop approach, to identify the analytical links between socialist wealth distribution schemes and economic stagnation. We could call countries which exhibit these schemes ‘poor countries’, as that would be a bit more appropriate than using vulgar words. We can then ask: do socialist wealth redistribution schemes make countries poor? Or, as the President put it:

​Do socialist schemes turn countries into shitholes?

One way to approach this erudite question is to ask what makes countries rich, and whether people in rich countries acquired wealth by being very good at redistributing wealth. This raises a series of questions:

​Why are some people and some countries rich, and others poor? Why did centrally planned regimes fail in economic competition with market economies? How do decentralised market economies coordinate complex products and global distribution? How do economic systems handle risks? How do they deal with inequalities of information in markets for technologically sophisticated products? How do they distribute the rewards between different members of the teams which manage complex production processes? 
 
John Kay, The Truth About Markets, 10.
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​These are the sorts of questions that will lead to a better understanding of wealth inequality. The answer does not lie in any single measure such as geographical location or natural resources – many rich countries are poorly endowed with natural resources, and many poor countries sit on rich reserves of gold, diamonds or oil. 

​The stark differences in economic lives around the world are not the result of differences in the availability of resources, or education, or capital, or skills. They are the product of differences in the structure of economic institutions. These latter differences in turn determine the availability of resources, education, capital and skills. 
 
The Truth About Markets, 18, 19.
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​These intersections are complex. Wealth redistribution schemes attempt to bypass economic complexity, based on the presumption that there is no need to examine complex economic considerations if we can simply raise taxes and redistribute wealth. The presumption is that wealth redistribution will have no adverse impact on productivity, a presumption that in turn rests on failure to understand how markets function.
 
Many might perhaps feel that it doesn’t matter how markets function, nor need we be concerned with implications for wealth production, because helping the poor is a moral imperative. Wealth transfers are simply the right thing to do. As long as rich folk exist, we can and should keep on taxing them. It will be fine.

​And if we run out of rich people to tax, well then we run out. It’s not the worst thing that could happen. The whole world may end up being an impoverished Third World, but that would come with two attractive moral advantages. First, that we’re all in it together which is always a nice feeling. Misery loves company. Second, we can draw comfort in our stagnation and decay from the certainty that we are moral people who had the courage to equalise the world.